Despite widespread warnings about a possible economic downturn, and uncertainty in the financial sector, stocks with strong fundamentals like Petroleo Brasileiro S.A. (PBR), United Microelectronics(UMC), and North American Construction Group(NOA) are showing impressive momentum. They could be good buys. Continue reading.
Experts are updating their predictions as the second quarter begins. They now include emerging risks like a credit crunch.
It is wise to invest in stocks such as Petroleo Brasileiro S.A.- Petrobras, United Microelectronics Corporation and North American Construction Group Ltd.
Over the last year, the Fed has raised interest rates aggressively to reduce inflation that had been high for decades. According to LPL Research investors anticipate a US default because the US Treasury market is pricing it in.
Lisa Shalett's, CIO at Morgan Stanley Wealth Management, warned recently that the stock market valuations were precarious, as investors had already factored in any good news that might have fuelled future rallies.
She said that, despite the bull market rally, many of the positives have already been discounted. This is especially true in regards to the sustainability of low interest rates, which support extreme valuations.
Chris Watling is the CEO of the financial advisory firm Longview Economics. He believes that the US economy will soon be in a recession, and that investors should prepare themselves for possible stock market losses.
According to Watling's report, the Conference Board recently released a report on the US Leading Economic Index which showed a drop of 1.2% in the month of March. This suggests that the economic slowdown could intensify soon and spread across the US economy.
Take a closer look at the above stock:
Petroleo Brasileiro S.A. - Petrobras (PBR)
PBR, with its headquarters in Rio de Janeiro in Brazil, discovers, produces and sells gas and oil in Brazil and abroad. The company is divided into Exploration and Production, Refining Transportation and Marketing, Gas and Power, and Corporate and other Businesses segments.
PBR's non-GAAP P/E forward multiple of 3.90, is 54.9% less than the industry average P/E multiple (which is 8.64). The stock's EV/EBITDA ratio of 2.25x, which is its forward EV/EBITDA multiple, is 56.8% less than the industry average 5.21x. The stock's P/S forward multiple of 0.65, which is 48% less than the industry average of 1.25x, is a lower number.
PBR pays a dividend of $6.39 per year, which yields a 55.11% return at the current market value.
PBR's fourth quarter sales revenue increased by 25.6% over the previous year to $30.17 Billion. This was for the period ending December 31, 2022. Gross profit increased 37.8% to $14.58 Billion from the prior year quarter, and net income rose by 45.8% to $8.28 Billion.
Analysts anticipate that PBR will earn $0.82 per share in the first quarter ending March 2023. It has a history of surprising earnings, exceeding consensus revenue estimates three out of the last four quarters.
PBR shares surged by 16% in the past month, closing the last trading session with a price of $11.60. It is up 8.9% for the year and trading above its 50 day moving average of 10.99.
PBR's POWR ratings reflect this positive outlook. Our proprietary rating system gives the stock a rating of B. This translates into Buy. POWR Ratings is calculated by weighing 118 factors to the optimal level.
PBR is rated A for Quality and Momentum. It is ranked 11th out of 42 stocks in the A-rated Foreign Oil & Gas Industry.
Click here to view additional PBR POWR ratings for Growth, Value Sentiment and Stability.
United Microelectronics Corporation (UMC)
UMC, headquartered in Hsinchu City (Taiwan), is a global foundry for semiconductors that operates under two segments: Wafer Fabrication, and New Business. It provides high-quality IC manufacturing services to all sectors of the electronics industry, focusing on logic technologies and other specialty technologies.
UMC and Infineon Technologies AG announced on March 7, 2023 a long-term partnership agreement for improving the production capacity of Infineon Automotive Microcontrollers to serve the rapidly expanding automobile market.
The high-performance product will leverage IFNNY’s proprietary eNVM technology (embedded, non-volatile memory) and be manufactured in UMC’s Singapore fab using its 40nm processing.
Jason Wang, UMC's Co-President, stated that "UMC has tripled its shipments of automotive components since 2019. We expect this momentum to continue, as the demand for automotive semiconductors continues to rise."
UMC's non-GAAP forward P/E multiple is 10.91, which is 45.9% less than the average industry value of 20.16. Its forward EV/EBITDA is 4.67x, which is 65% less than the average industry of 13.34x.
UMC's operating revenue increased by 14.8% over the previous year to NT$67.84 ($2.21 billion) in the fourth quarter ending December 31, 2022. Gross profit grew 26.1% over the past year to NT$29.12 ($950.14 millions).
The company's net profit increased by 19.6% to NT$19.07billion ($622.23 million), and its EPS was NT$1.54 representing an 18.5% increase year-over year.
Street estimates UMC's earnings per share (EPS) to be $0.17 for the first fiscal quarter ending March 2023. The company's revenue has exceeded estimates for all four quarters in the past, which is impressive.
UMC's share price has risen by 29.7% in the past six-month period and 23.9% for the year to date, closing the last trading session with $8.09. The stock is currently trading higher than its 200-day moving median of 7.20.
The robust prospects of UMC are reflected by its POWR ratings. The stock is rated A, which is equivalent to a Strong Purchase in our POWR ratings system.
It is rated A for Momentum, Quality, and Value. UMC ranks on the top 91 stocks of the Semiconductor & Wireless Chip Industry.
Click here to see the POWR ratings for UMC (Sentiment & Growth).
North American Construction Group Ltd.
NOA, with its headquarters in Acheson (Canada), provides heavy construction, equipment maintenance and mining to clients in the U.S.A., Canada and Australia. The company is divided into two main divisions, Heavy Construction & Mining and Equipment Maintenance.
NOA's forward EBITDA/EV ratio of 3.88x, is 25.6% less than the industry standard of 5.21x. The stock's P/S forward multiple of 0.79, which is 37.2% less than the industry average of 1.25x, is a lower number.
NOA's Board of Directors voted on February 14, 2023 to increase the dividend rate by 25% to CAD0.40 ($0.30). The company paid out a quarterly dividend on April 7, 2020 of CAD0.10 ($0.74).
At the current price of the stock, the annual dividend of the company equates to a yield of 1,58% compared to a four-year average yield of 1.24%. Over the last three years, its dividend payments have grown at a CAGR (Compound Annual Growth Rate) of 34.6%.
NOA's combined revenues increased by 36.3% over the previous year to CAD320.11 ($236.39) million during the fourth quarter of fiscal 2022. The combined gross profit grew 77.1% over the past year to CAD57.13 ($42.19) million.
The company's EBITDA and adjusted EBIT grew by 81.6%, 52.6%, and CAD45.67 ($33.73) million and CAD85.88 ($63.42). The company's earnings per share (EPS) increased by 31.1% to CAD2.15 in the past year.
Analysts anticipate that NOA's revenue and EPS for the current quarter, which ends March 2023, will increase by 48.3% over last year to $168.20 and $0.59 respectively. In three of the last four quarters, it has exceeded the consensus revenue and EPS estimate.
The stock closed the last trading session with a gain of 39.6% over the year and 70.1% in the past six-month period. It is also trading above the 50-day and 20-day moving averages, which are $16.79 and 13.36 respectively.
No surprise, NOA's overall A rating translates into a Strong Buy in the POWR Ratings System.
The company also received an A for Momentum, Sentiment, and B for Quality. NOA is the top-ranked stock among 43 companies in the Energy-Services industry, which has a B-rating.
Click here to access NOA's POWR ratings for Growth, Value and Stability.
The bear market is not over...
This is why Steve Reitmeister, a 40-year investment veteran, has created a timely presentation that includes a trading strategy and his top picks.
PBR shares increased $0.03 (+0.26%), in Monday's premarket trading. PBR shares have gained 8.92% year-to-date compared to the benchmark S&P 500 index which has risen by 8.20%.
About the Author: Kritika Saarmah
Kritika's passion for writing and interest in risky financial instruments made her an analyst and journalist. She has a bachelor's in commerce, and is currently studying for the CFA. She hopes to identify investment opportunities that are not being explored by investors using her fundamental approach.